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0 - Issue 38
Syria: Public investment planned
by Robert Tashima
Details from the draft stages of Syria’s forthcoming 11th Five-Year Plan suggest that the government intends to place a renewed emphasis on public investment in the coming years.
Speaking to SANA towards the end of last month, Abdullah Dardari, deputy prime minister for economic affairs, said the new plan would focus on investment in infrastructure and energy security. “We have signed several contracts worth $5bn to produce 5,000 MW of electric power by the end of 2013, increasing the generation of electric power in Syria during the next five years by 70%,” Dardari said.
Early reports state that the new plan is expected to be ready by next March, and will set ambitious targets of 8% annual GDP growth, and a reduction in unemployment to 4%. By comparison, recent growth levels before the global crisis were averaging between 5% and 6%, while unofficial estimates for unemployment are between 10% and 12%.
The Syrian government appears keen to extend the public-private partnership model (PPP) to other areas of infrastructure investment, with the government sponsoring the country’s first PPP conference last October in Damascus, where Dardari told potential investors that Syria would require in the region of $50bn in infrastructure investment over the next five years.
The Syrian government has been working alongside the World Bank’s International Finance Corporation for the past few months in preparation for the country’s first independent power project (IPP) – a 250 to 350-MW plant to be located 60 km north of Damascus, on a 20 to 25 year build-operate-transfer concession. According to regional press, two bids for the power plant have been shortlisted since September 2009: one led by Marafeq, a joint venture headed by Cham Holding including participation from several Kuwaiti firms, and the other a joint venture between Finland’s Wartsila and the Greek company Terna Energy.
As it currently stands, Syria lacks a domestic legal framework for PPP contracts. However, recent changes to banking regulations requiring private banks to up their minimum capital from $33m to $220m seem designed to improve the nascent sector’s capacity to fund large-scale infrastructure projects. The first such project to be run by Syria’s domestic private banking sector saw a $340m syndicated loan, involving 16 local and international financing partners, made available to French cement producer Lafarge for the construction of its new Syrian plant late last year.
The book-runner on that loan was Bank Audi Syria, whose deputy chairman and general manager, Bassel Hamwi, recently told local press that hurdles remained in the movement toward PPPs. Noting that the key concern for business was return on investment, Hamwi described the speed at which the government moves ahead in structuring and implementing projects as “crucial.”
“The worst thing that could happen is for investors to put in the funds and their return on equity plummets,” he said.
The issue is indeed a genuine concern for the banking sector: currently 10% of bank capital must be deposited at the Central Bank of Syria, where, in the absence of a treasury bill market or certificate of deposit system, currently earns no interest. As a result, banks must work their remaining capital especially hard to ensure a return on equity for investors. While PPPs would offer a potentially rewarding return on investment for that capital, the government must first build confidence in the sector, ensuring that such contracts proceed smoothly.
